Germany's Labor Market Success Story

What has happened since? Well, while most other countries have seen unemployment increase, German unemployment has dropped from 9.7% in 2004 to 6.8% in 2010 (annual averages). From having an unemployment rate significantly above the EU average, Germany's unemployment is now significantly below it.

What's more, the labor force has increased nearly 1% , despite the fact that Germany, like Japan, has seen its a decline in the overall population and an even greater decline in the working age population.

No numbers for the entire period can be found on the German statistics office web page, but extrapolating the 2003-06 period, it seems that the working age population is decreasing at a rate of 0.5% per year, implying a cumulative decline of 3% between 2004 and 2010, something which in turn means that the relative labor force participation is up by 4%.

Add to that the decline in unemployment, and the German employment to population rate is up by 7% between 2004 and 2010, a period when as mentioned above most other countries have seen a decline in the employment to population ratio.

While there are probably other factors involved too, the German experience is a vindication of "Agenda 2010" and supply-side policies in general.

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